To Lien Strip or Not to Lien Strip: Fourth Circuit Blesses Controversial 'Chapter 20' Valueless Lien Stripping in In re Davis

Abstract

The United States Court of Appeals for the Fourth Circuit became the first circuit court to hold that a debtor can “strip off” a wholly valueless lien in a “Chapter 20” bankruptcy in Branigan v. Davis (In re Davis). Addressing an issue that has divided bankruptcy courts, district courts, and bankruptcy appellate panels across the country, the Fourth Circuit armed debtors with a powerful (and controversial) tool to restructure (or avoid) debt — even if the debtor is ineligible for a bankruptcy discharge. The Davis decision, moreover, brings into the crosshairs the Supreme Court’s infamous interpretation of “allowed secured claim” from Dewsnup v. Timm.

This article therefore examines Chapter 20 lien stripping and the Davis decision. Chapter 7 and Chapter 13 lien stripping are also evaluated. The article concludes with an analysis demonstrating how Davis may allow the Supreme Court to revisit its much-maligned statutory interpretation from Dewsnup v. Timm.

Keywords: bankruptcy, law, lien, lien stripping, Davis, Branigan, Dewsnup, Timm, Chapter 20, Chapter 7, Chapter 13, debt, loan, note, mortgage, valueless, BAPCPA, bankruptcy court, fourth circuit, 4th circuit, debtor, secured, unsecured

JEL Classification: K00, K10, K19, K20, K29, K30, K39